Q3 2023 Celsius Holdings Inc Earnings Call
[music].
Greetings and welcome to Celsius, as third quarter, 2023 financial results.
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It's now my pleasure to introduce your host Cameron Donahue Investor Relations for Celsius Holdings.
You may begin.
Thank you and good morning, everyone. We appreciate you joining us today for Celsius Holdings third quarter 2023 earnings Conference call. Joining me on the call today are John <unk>, President and Chief Executive Officer, and Jarrod Langhans, Chief Financial Officer.
Following their remarks, well open the call to your questions desktop the company released third quarter earnings press release earlier. This morning, and all materials are available on the Companys website Celsius Holdings, Inc. Dot com as well as on the Sec's website SEC Gov.
As a reminder, before I turn the call over to John and audio replay will be available later today and can be accessed with the same live webcast link in our conference call announcement press release.
Please also be aware this call may contain forward looking statements, which are based on forecasts expectations and other information available to management as of November 7th trace rate. These statements involve numerous risks and uncertainties, including many of you beyond the Companys control.
The extent as required by law Celsius Holdings undertakes no obligations and disclaims any duty to update any of these forward looking statements. We encourage you to review in full our safe Harbor statements contained in today's press release, and our quarterly filings with the SEC for additional information. Additionally.
Additionally, management bullshit operating results on both the GAAP basis non-GAAP basis descriptions of those non-GAAP financial measures that we use such as non-GAAP adjusted EBITDA and reconciliations of these measures to our results as reported in accordance to GAAP are detailed in the earnings press release, the third quarter of 2023 with that I'd like to turn the call.
President and Chief Executive Officer, John BLA prepared remarks, John Thank you Cameron good morning, everyone and thank you for joining US today Celsius achieved record sales in the third quarter that totaled approximately 385 million up 104% from 188 million for the prior year third quarter. This was driven predominantly.
Italy by North America revenue, which increased 107% to $371 million up from $180 million for the prior year third quarter.
Celsius continues to be the top driver of growth in the energy category, both in dollars and units to retract channels Celsius is the number one dollar and unit growth brand over the last 52 weeks per IRI total U S. Milwaukee energy category data ending October eight 2023 growing approximately.
$950 million incremental dollars up 144% versus year ago, while representing 20% of all category dollar growth in.
In addition, our unit growth totaled $289 2 million incremental units, an increase of 114% versus a year ago and totaled 39% of all category unit growth.
Per IRI and the four week period, ending October eight 2023 in Moulage Celsius is the number three energy drink brand in the U S with approximately a 10.5 share market share more than doubling its 4.4 share in the same period last year.
This dollar growth and 10.5 share has not been achieved in the last decade we.
We continue to see growth across all channels, both tracked and non tracked with our club channel sales totaling approximately $63 2 million for the quarter ending September 30th up 83, 3% year over year compared to $34 5 million for the prior period third quarter per Stateline on Amazon.
For the last 14 weeks ending September 32023 Celsius is now the best selling energy drink on Amazon with approximately a 21 point for sure in the energy category ahead of Monster at an 18.6 share and rebel at a 13 sure.
Our third quarter, 2000, and twenty-three Amazon sales total approximately $22 2 million versus $15 6 million for the year ago period, an increase of approximately 42%.
Celsius is now the number one energy drink brand on instant card and continues to outpace the category growth as a largest and fastest growing brand on the platform.
We continue to expand our growth opportunities in non track foodservice channels are gaining more distribution points at colleges universities hospitals hotels eateries casinos and more overall foodservice continues to exceed approximately 10% of our Pepsico revenues and we see this area as an <unk>.
Opportunity for further growth and scale, we are extremely happy with our Pepsico partnership and we believe there is a long runway ahead of growth across a variety of channels, including expanding our retail convenience and foodservice.
During the quarter in foodservice I like to highlight that Celsius is now available in over 2000 Jersey, Mike locations across the United States and we've now gained authorization and over 3000 Dunkin' Donuts nationwide. This illustrates the many unique usage occasions that we're seeing and our customers are enjoying our Celsius products.
As highlighted in our earnings supplement per IRI for the four week period, ending October eight 2023, we have increased our market share in <unk> by approximately 138% to a 10.5 share which has not been achieved in the energy category over the past decade versus a 4.4% share in the prior year period.
In Lula Celsius grew its a C V two of 95, 6% versus 72.1% year over year.
Inconvenience Celsius gain an additional 22.6% of ACB growth versus the prior year period, ending and resides at approximately 95, 6% of ACB.
Compared with a 73% of ACB in the prior year. This provides tremendous opportunities as we continue to grow customer awareness and our national availability.
International sales grew approximately 56% in the third quarter totaling $13 6 million compared to $8 7 million in the third quarter of 2022, driven in large part by successful innovation launches increased velocity and brand awareness.
The first major international market in which we plan to expand to you under the Pepsico umbrella is Canada expected to launch in the first quarter of 2024, we believe there are significant opportunities for incremental growth over the next three to five years as we execute our international expansion blueprint and a handful of countries in 2024 with.
The opportunities for further expansion in 'twenty five 'twenty six and beyond we expect to provide additional details as we get closer to these dates beyond new markets. We're very excited about a number of our innovative launches that our team has created and been working through including our recent launch of our newest by flavor cosmic fighting a great tasting sparkling.
Fruit punch flavor, which is out of this world and is now available at circle K. In addition, just recently in November we launched our new 16 ounce line Celsius Essentials, which is exclusively available initially at 711 through the remainder of 2023 with a nationwide rollout plan in 2020 for Celsius Essentials is formed.
Lady for fitness enthusiasts looking to elevate the performance each can of Celsius Essentials contains 270 milligrams of caffeine or central minnows as well as our proprietary blend providing you with the combination of enhanced physical performance and cognitive benefits. This new line comes in for Great tasting flavors Blue crush.
Caroline made Dragon Berry and Orange Circle.
Net income attributed to common shareholders totaled $70.5 million in the quarter or <unk> 89 cents per diluted share compared to a net loss of $186 5 million or a net loss of two point of $2 46 per diluted share. The prior year losses were preliminary driven by termination expenses as we move from R. R.
Prior distribution network to the Pepsico distribution system.
non-GAAP adjusted EBITDA increased 318% to approximately 104 million in the quarter compared to $25 million in the prior year period, driven substantially by revenue growth and increased margins and a continued leverage across our SG&A.
Our record non-GAAP adjusted EBITDA in the third quarter, representing an approximately 27% of sales. This was driven by gross margin improvements of 860 basis points in the prior year ago to approximately 54% gross profit versus 41.8% and.
In addition, we saw a combination of leverage across our sales and marketing totaling approximately 19.1% of sales in the third quarter compared to 23% adjusted for distributions or termination expenses in the prior year period.
G&A general administrative expenses totaled approximately 6% in the third quarter compared to 14.6 of sale in the prior year period, Jeremy will cover these items in more detail shortly.
Our distribution partner Pepsico continues to facility ACB expansion supporting new customer acquisitions across broad demographics, and new usage occasions going forward, we expect that our key incremental growth drivers are expected to be increasing our skus, our flavors and facings at retail improving shelf.
More placements in stores secondary placements and Celsius branded cooler placements as well as expanded at the independent convenience expansion initiatives as well as foodservice and increasing our velocities at shelf.
In recent calls I'm also excited in South Florida, as an example of what a more developed and mature market can look like over the last four weeks as of October <unk> 2023 per IRI Celsius in South Florida market share was approximately 24.1% at the beginning of January.
2023, our market share was 17.7. This shows the strong market share and growth. The Celsius brand has achieved in the south Florida market as well as the opportunities that we see in a broader market as we look for national U S availability as we continue to rollout into further locations and improve our placements at retail as well as abroad.
Cities.
To conclude my prepared remarks Celsius continues to lead both on a dollar and unit growth basis in the energy category.
The leverage in our operating model is becoming more apparent with incremental growth highlighted by 104% sales growth in the third quarter delivering over a 300% adjusted EBITDA growth our customers, having growing the category both in demographics and usage occasions, increasing their dollar spend on Celsius.
I also want to highlight the Celsius team and the amazing job, they're doing we've added over 200, new full time and part time employees during the third quarter developing our world class team continues to position Celsius to execute against our growth opportunities that we see in front of us while driving operational leverage to unlock.
Greater shareholder value.
I'll now turn off call over Jarrod Langhans, our Chief financial Officer for his prepared remarks, Jared. Thank you Josh and thank you all for joining US. This morning. It was another great quarter, where we continued to exceed both internal and external expectations not only are we continuing to benefit from the distribution system of Pepsi, but we're also delivering on increased SKU count improved placement.
<unk> increased displays and continuous improvement within velocities, we plan to continue investment in our growth in Q4 and beyond. In addition, we have seen the benefits of leverage across our business with gross margins operating margins and EBITDA margin all improving.
As we announced last week the company initiated a three for one forward stock split and we expect that the common stock will trade on a split adjusted basis commencing with the opening of trading on the NASDAQ capital market on November 15th 2023.
Turning to our third quarter financial highlights revenue for the three months ended September 32023 was approximately $385 million, an increase of 104% from $188 million from the same period in 2022, North American third quarter revenues were $371 million an increase of 100.
<unk>, 7% from the same period in 2022 International revenue grew 56% to $14 million as we saw a recovery from the challenging environment that existed in the prior year.
We attribute our sales volume growth for the quarter compared to 2022 to several key drivers, including a successful integration into the Pepsi distribution system, which has resulted in broader availability increased SKU mix and improved placement. We're also benefiting from robust expansion in our traditional distribution channels and club channels with SKU increase.
<unk> and placement improvements all contributing Moreover, our product are now found in several new channels within CMG in foodservice as discussed in the prior year. There was a pipe Bill in Q3 2022, we also had growth in inventory at our distributor in Q3 of 2023, which was an offset to the prior year pipe fill as a result inventory.
Was a significant component of the year over year percentage increase.
Increased product availability has improved the success rate of our promotional activities for the third quarter of 2023. The company received updated information related to promotional activity across our footprint and evaluated this data in conjunction with recent trends and activity, which resulted in improvements and adjustments to our promotional allowance accrual.
As a result, despite increasing our promotional activity during the 100 days of summer campaign as a percentage of revenue the promotional spend was consistent with the prior year period.
Gross profit for the third quarter increased 147% to $194 million up from $79 million in the prior year period gross profit margins in the quarter were approximately 50% of revenues compared to approximately 42% for the prior year third quarter. The improvement is attributed to lower package and raw material costs as well.
The improved waste of greatly inefficiency.
Sales and marketing expenses for the quarter were approximately $73 million a decrease of approximately 63% compared to the third quarter of 2022. The decrease was due to a prior year costs associated with the termination of legacy distributors as a part of the transition to the Pepsi network adjusting for last year's termination expense marketing and sales investment.
<unk> increased in the quarter, while SKU count distribution and velocity budgets outperformed delivering good leverage across the sales and marketing expense lines.
As a percentage of sales sales and marketing was 19% compared to 23% in the prior year adjusted for distributor termination expenses, we plan to continue investment in our sales and marketing with increased planned spend as a percentage of sales in the fourth quarter to execute strategic seasonal investment programs with our distribution partner.
General and administrative expenses for the quarter were approximately $23 million a decrease of 17% relative to Q3 2022. This decrease was due to the impact of timing of legal settlements in the punk foods brand impairment in Q3, 2022.
Moving to a few comments around quarter over quarter activity to provide some additional insight into our recent activity revenue for the third quarter increased sequentially by 18% driven by distribution gains across tracked and untracked channels as well as skus per location and SKU placement. In addition to these drivers we benefited from some inventory building within our prime.
Barry distributor as well as from adjustments to our promotional allowances with some offsets to our growth as a result of mix within our skus in channels and estimate of the impact of inventory promos and SKU channel mix compared to Q2 would have been roughly $20 million gross profit dollars increased by 22% and gross margin improved.
165 basis points sequentially from the second quarter, driven by positive adjustments to our promotional allowance accounts as we maintained our leverage across raw materials freight and scrap rates, excluding the promotional allowance benefit we would've had gross profit margins consistent with Q2.
Looking at the first three quarters of the year revenue for the nine months ended September 30th was approximately $971 million, an increase of 104% from $476 million for the nine months ended September 30th 2022, driven by our North American business North America year to date revenues were $931 million an increase.
<unk> of 108% from the same period in 2022 International revenue grew 46% to $40 million in the first nine months of 2023 gross profit for the first nine months of this year increased to 143% to $467 million up from $192 million in the prior year period gross profit.
Margins in the first nine months were approximately 48% of revenues compared to approximately 40% for the prior year period. The improvement in gross profit margin is attributed to lower package and raw material costs and improved freight lane efficiency.
As things stand today, we would expect Q4 gross profit margins to be consistent with the Q2 and full year margin profile.
As a percentage of sales sales and marketing was 19% in the first nine months of 2023 compared to 22% in the prior year period adjusted for distributor termination expenses.
G&A expense as a percentage of sales was 8% for the first nine months of 2023 versus 11% in the prior year.
Focusing now on liquidity and capital resources as of September 30th we had cash in excess of $760 million and net working capital in excess of $879 million cash flows provided by operating activities totaled $136 million for the nine months ended September 30th which compares to $171 million of net cash for.
Abided by operating activities for the same prior year period.
The change in cash generation was driven by an increase in net income offset by working capital and timing benefits of transactions associated with the Pepsi share purchase and distribution agreement in 2022.
Looking at inventory total inventory in the third quarter of 2023 ended at $199 million up approximately $46 million from the quarter ended June 32023. This was driven in large part by increases that we saw in our sales volume. In addition to increases associated with innovation inventory building ahead of January launches.
Going forward, we will continue to monitor inventory to ensure we were able to keep up with the growth. We are expecting at the same time, we do see opportunities to drive efficiencies in our D. I O as we move into 2020 for this.
This concludes our prepared remarks, operator, you may now open the call for questions. Thank you.
Thank you ladies and gentlemen at this time, we will begin.
A question and answer session.
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Our first question comes from the line of Mark Astrachan with Stifel. Please proceed with your question.
Yeah. Thanks, good morning, everyone.
Maybe just start on distribution points.
Any sort of benchmark you can you can give obviously the growth has been.
Significant buy how do we think about it in terms of where it can go like if you look at where.
Celsius as total distribution points are versus <unk>.
Monster and Red Bull there there are about 50% of those two brands. If you look at convenience stores as an example.
Your current distribution footprint about 20% less than we're bang was at peak distribution, yes.
Sort of color you can give on kind of where you think the right level of distribution can be maybe.
Longer term holistically, and yes sort of shorter term line of sight as you head into 'twenty four particularly given.
Paul and then spring resets.
Yes, Thank you Martin.
You know when you look at the distribution points will look at it kind of appears that we're looking up to obviously its monster and Red Bull. So you know overtime matters. Our goal and objective is to achieve those maximum distribution points, which the two leaders have in the category I think we're still on your you know an earlier phase in as we are in the growth cycle and the opportunities will continue.
To evolve upon resets as.
As we continue to evolve through 2024 and beyond I think when you look at you know the average points of distribution. When you look at we're right around 95.6 really need to continue to work on the total breadth within the distribution points.
We just got finished with the next last month, which was a great show probably the best show in company history, a lot of excitement around some of our new innovation of our core flavors as well as further expansion upon her by flavors as.
As well as the launch of our Celsius Essentials line. So.
That's our peer group, we expect over time, our goal and objective is to have the same.
Points of distribution as rebel and monster.
Got it okay.
Helpful and then.
Looking at the Amazon Costco.
Sales in the quarter.
Yeah, there were a little bit slower I think sequentially in terms of rate of <unk>.
Growth in the word QQ.
Again, it's a bit of a challenge to try to model that from where we all but anything that you can call out there that may have played into that would be helpful. Too. Please.
Yeah, I think I mean, you got to look at each customer differently somewhat differently in different channels. They also youre looking at a singular customer versus okay.
<unk> Chan also I think modeling it out it does get a little bit challenging in regards to Amazon. When you look at the Lumpiness that was in the quarter from Q2 to Q.
Three when we dove into the data it really was looking at a prime.
Somewhat of a prime build in Q2.
Due to prime taking place June 11th and 12th which was really successful for us. So we did have some lumpiness there when looking at Amazon specifically.
And then when you look at that you know the club channel which is.
Mainly cosco and.
And Sam's because he days is reported through IRI.
When looking at that specifically.
There is some lumpiness between the two customers on load ins can be some seasonality up at the end of the quarter, but both of our businesses are extremely strong in both those channels and on Amazon, We actually gained over two points of share which is.
Last quarter, when we reported in the second quarter. We finished our share number at 18.6 and we just came in at 21.4, so it almost within a quarter. We gained over 200 basis points in share. So that's our that's a really great achievement. The teams are working really hard and we had a great Prime day as well. So that's great to see also on our on the club business.
To be a really strong business and we don't really see that slowing down we see great opportunities to further leverage our additional pack sizes as we continue to scale within the club channel.
Got it thank you.
Thank you Mark.
Our next question comes from the line of Gerald Pascarelli with Wedbush. Please proceed with your question.
Great. Thank you very much good morning.
I just had a question on pepsi's current inventory levels, you've been in the system for a little over a year now it looks like you built inventory in three Q.
Just some color on what you expect to happen with these inventory levels in the fourth quarter as we approach a low seasonality quarter ahead of winter do you expect any changes in their number of days on hand or is there nothing to suggest that you know there will be any incremental changes.
Current inventory levels. Thank you.
Yeah, Gerald that's a great question and we're on are really cycling our first.
Now full year with them, where there's perhaps a coach selling their first case in October, but I'll turn that question over to Gerry.
Yeah good morning.
You know as we look last year was it was difficult to really.
Kind of peg, whether inventories were pulled down or it was just a matter of seasonality as we look now we do have some innovation that we filled the pipeline with so we are ready.
From that perspective.
But at the end of the day, the Pepsi team would have to determine if theyre going to do any kind of management around the inventory is there going into Q1.
I'll say, we are excited as we move into 2024, but theres no guarantees in terms of the inventory management from that perspective.
Understood. Thank you.
Next question is just on gross margin, obviously, it looks like youre going to end the year.
The high Forties, Jared I know you've previously referenced a mid to high Forty's kind of medium term outlook does this outperformance that we've seen in the last two quarters, maybe change your medium term outlook on how to think about gross margin or do you still expect it to remain volatile given that the.
Our focus is to continue to gain market share and stretch right. If you need to in certain instances any color there would be great. Thank you.
Yes.
Things stand today knock on wood from a raw material perspective, we have captured a lot of savings this year and so that's been pretty consistent for the last few quarters. We have also maintained.
Our outbound freight number for the last few quarters, obviously, we know that fuel costs can spike at any point in time that can cause.
Paying down the road so.
I don't know that I'm ready to call the fuel or the outbound freight line as a lock.
We are pretty comfortable where commodity stand today with with what we've seen from a raw material perspective, so I think our raw material costs.
In kind of Q2 and Q3 should remain steady as we go into 2024.
There is still that freight line, though that that could cause some fluctuations I think the operations team.
Did a fantastic job this year and really clean it up.
The scrap in any kind of waste.
Really you have done a great job with the aged inventory really did a great job really tightening up the cost of raw materials and they've really managed the freight lanes, especially the last two quarters.
Superbly, so so hats off to those guys for that and you know our goal is to keep it up.
Not sure how much more we can squeeze out of out of where we were.
Going into 'twenty, four we'll definitely shoot for it but.
No guarantees, but we are really.
In great shape, as we're moving into 'twenty four.
Super Super helpful color. Thanks, a lot guys.
Thank you.
Our next question comes from the line of Vivian.
T D. Cowen. Please proceed with your question.
Hi, Thank you good morning.
Early on in the Q&A you commented on the importance of research is one of the factors to drive continued growth and leverage the Pepsi relationship last quarter. You commented that the conversations where we're early into 2024 and you talked about a couple of different categories, where energy might be sourcing fair I was hoping you could just provide an update on your conversations.
With with key retailers around shelf resets for 24. Thank you.
Yeah, Yeah, Vivian morning, and it's.
It was.
We're still.
Retailers are still defining their sets for next year, but we.
We had probably one of the most successful Max.
The company has had in history, there's a lot of great excitement I think when you look at what just happened currently this week. When you look at 711, taking four skus of our Celsius Essentials line.
It just shows you a nationwide chain wide also if you go to a 711 right now you'll see signage in front of every 711 as well as gas pump activity as well so really excited with the way the partnerships are going with our key accounts.
You know we've been.
We have a great key accounts team best in class. We've had early conversations with every one of our major retailers.
So we're pretty excited on what we said heading into the new year on resets, we expect to gain distribution expanded distribution in our existing flavors as well as further expanding the new innovation, we have in store for 'twenty 'twenty four so the team's been working really hard we've been working really closely with Pepsi as well too.
Make sure we're going to have really are it is really heading into our first year of our strategic partnership.
Really launching our innovation on a nationwide basis versus if you go back last year keep in mind, we just started with Pepsi late in Q4.
Our plans and strategies weren't really aligned with their E. O P process. We came in on the very tail end of that.
We were really trying to make up ground all year on the innovative launches. So we're looking at strategic prioritization periods within Pepsico focus within quarters and months. So I think it's gonna be really successful you know time will tell we'll have to wait until probably about March April are the ability to start to see the additional expansion schuh.
And the IRI scan data.
But the team feels a pretty pretty excited on where we stand and theres a lot of great excitement in the number one driver of both dollars and units in the category.
It's really impressive to see in a brand like Celsius.
Absolutely. Thank you for that very comprehensive response. This is a follow up.
Okay.
23 was supposed to be back half weighted in terms of expanding your head count can you just update us on on the hiring kind of where you guys on plan in the third quarter should that accelerate in the fourth quarter.
It would be helpful. Thanks.
We actually are we have actually our national sales and marketing conference is taking place this week in Miami.
Have all of our team members are currently Jared and I are heading down right. After.
Our earnings call and we have about three days a great presentation really getting all of our team members excited.
Our plans and budgets for next year as you continue to bring on talented team members really building out the breadth within our organization within all departments.
In HR further expansion in finance logistics operations sales marketing.
And really focusing and expanding upon our drill deep markets as well I know, we've talked about that over the years.
Currently we are focusing on a drill deep strategy within twenty-three markets and we'll be expanding that next year to over 30.
So we're building out our field teams our sales teams.
And we're seeing great results and ROI return when we place these individuals' and expand these positions. So that's another thing we're monitoring really closely as well as as we're applying assets, making sure we're driving that value and that overall returns so.
Back to us to continue we are hiring and.
And we have a lot of job postings up on Linkedin as well. So I would expect that continue we're monitoring it closely though.
Alright, thank you.
Okay.
Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question.
Thank you good morning.
Good morning, Michael.
I was wondering if you could unpack some of the margin drivers you had called out last quarter.
The sequential dip you were expecting from the higher promotional activity and higher marketing spending in the EBITDA margins obviously.
But then it went up instead, you touched a little bit on some of the promotional dynamics not coming through quite as you had expected and being.
Minimal or not a tailwind a headwind but can you just.
Help us understand some of the other factors in part just to get an idea of what is sustainable and how to think about looking ahead.
Yeah.
Jared Diamond some details there.
But I think on a.
On a higher level when you look at some of the expanded distribution that we've had.
We've expanded into.
Really like foodservice and some other independent locations that just hasn't historically when the cases come through are somewhat of a lower promotional allowance our cost of doing business in those channels, but we did see some leverage there and there was also we had some timing in the quarter as well, but I'll throw that over to Jared.
Further to provide additional details in answering that question.
Yes.
As you said, a handful of things unpack I'm going to start from the bottom and work my way up but I'll start within the.
Well I guess the middle of the P&L. So if you look at G&A, we did see some really good leverage there.
We benefited from some of that outsized topline growth relative to the spin we have as we look out into 2024.
On a nine month basis I believe our G&A is about seven 9%.
I think we were pagan roughly 8% for the year. So we did track a little bit better in Q3.
Probably where we land on a full year basis next year, obviously this year it'll be somewhere in between those two but next year will be kind of in between there.
It can be in that seven to eight range on a full year basis, and 24, where we will see some leverage come through but good leverage coming through on the G&A line.
I think a lot of that sustainable theres, probably a little bit as we continue to build out our teams.
That will give back.
As we continue to scale and really try to set our business up. There is also some international expansion, we've been talking about and things like that where there'll be some investment upfront that.
And that will drive some costs and so you won't see the full leverage but we will see good leverage in the G&A line on the sales and marketing line, we've been averaging kind of that 19% to 20% this year, where historically, we've probably been in the 22 to 24, so we've seen a bit of leverage there.
As we look out into next year, we don't think that the competition is going to get any easier. So we will continue to.
Burst into the market and look to continue.
We don't have exact numbers, we do have our budget, but we don't really give out specific numbers along the way, especially since we don't give the sales guidance out, but we would look to continue to invest into the business and really drive the growth of the business.
But we have seen some leverage there throughout the year. If you go up to the gross profit line. We did just talk about that where you.
After Q1, you saw the benefits of really the improvements you've seen in commodities across the board across both us and our competition also we had rolled off of the international cans.
Whereas in Q1, we had international can still on the system by the time, we got to Q2 was a clean view.
And so we've really seen some benefits come through the raw materials and also you've seen really the benefits of the freight lanes that were established I think we we were running about on a year to date basis, four 9%, whereas last year. It was five 9%. So we've got 100 basis points just out of running better from a freight lane perspective.
And actually if you look to Q3 and Q2, it's been a little bit better than that number.
So we've seen kind of benefits on each line along the way really driving that.
That EBITDA margin across the year.
That's helpful can I just also follow up on the Canada launch and.
I know you said, it's in the first quarter should we expect pipeline fill for that in for Q or would it be a little bit later in the first quarter.
I guess the follow up is really kind of argue minded maybe one is there a canada impact we should keep in mind and then maybe any color on how it's looking quarter to date that you can give us.
Yes, I mean, Canada will be.
From a build in our impact in 'twenty four it'll be it'll be kind of inconsequential.
We expect good growth, we expect to get in there and start capturing market share we expect to put forth the investment that's needed.
To really kind of seating and grow fast in 'twenty four.
But it won't be a huge driver of inventory or growth in Q4 or Q1.
And the rollout of what will happen in Q1, but it won't be a one one launch.
Okay. Thanks Juan.
Our next question thinking about the line of Peter Grom with UBS. Please proceed with your question.
Thanks, operator, good morning, everyone.
I kind of wanted to follow up on that just kind of the international expansion and Ken and then <unk> I think you mentioned a few other countries.
Can you maybe just help us understand how you evaluate the international opportunities, which markets timing et cetera are these markets, where youre going to be fully aligned with Pepsico and their partners or are there other partners Youre, considering and then I guess it would be.
I'm curious from a profit perspective.
You start to expand further outside the U S. How should we think about the impact to margins.
Yes, Thank you Peter.
We've talked about this on a variety of other calls in the past as well I mean, we're looking at the largest energy drink markets in the world. So that's those are the biggest opportunities we see.
When you look at those you're looking at the U K you look at you look at Germany, you look at Japan, Australia.
Lot of big opportunities out there and Pepsi partnerships are really our priority there will be other markets, where we do see other opportunities with other partners.
So we can evaluate those as we continue to move forward. The first market that we're partnering with is in Canada. So the teams are really focused on that.
And we have spoke about other markets that we're working on to further rollout into 24 and 25. So I think we're a little bit too early to talk about you know a lot of those are those structures. There's a lot involved to make sure you have the right value chain are the right opportunity for exactly what you're talking about the longevity of profitability.
<unk> as we go forward in these markets so.
We're using monster international.
Structures.
Npls as a guideline for us as we look forward to really partnering with our partners in expanding together in these new markets, but that's.
We have a variety of our markets. We're looking at but currently we're rolling out into a focused on Canada is the biggest opportunity at our hands at the moment.
Got it and then Jared I apologize you were kind of running through some of these items quickly, but I think you mentioned there was a call. It a 20 million dollar benefit.
<unk> revenue can you maybe just run through that again, how much was the promotional allowance did you build inventory ahead of what you were lapping year ago. So if you can just unpack that a little bit I think that would be helpful. Thanks.
Yeah. So it was if you look at Q1, sorry, Q3 of 22 versus Q3 of 'twenty three we talked about there was a bit of a pipe fill from inventory.
Last year and then if you look this year, we had a bit of a pipe fill probably somewhere in between that $10 million to $15 million range.
And so it wasn't a significant.
Factor in terms of the year over year growth percentage from an apples to apples perspective, if you looked at.
Q2 to Q3, it was a benefit from Q2 to Q3.
Within the revenue figures, so that that's the inventory piece.
We're starting to see leverage come through the promo lines. So we did see a benefit and we have updated our estimates around pre.
Promotional allowance just a lot of that John mentioned is about we've had significant growth a CV growth we've been moving into a lot of call. It non tracked channels, but a lot of areas, where you don't see promotional activity as deep and so you start to see that benefit and if you look at monster has an exam.
Historically, you know you can see we're there.
Promo as a percentage of gross revenue or gross dollars.
Proved over time, and so we're starting to see that as well now.
Now, we did invest or add additional incentives in Q3, but the leverage allowed us to.
More or less have.
A percentage of revenue or a percentage of gross revenue consistent.
Year over year, when Youre looking at Q3 2022 to Q3 2023, and so that's where that was called out.
Got it thanks, so much I'll pass it on.
Thank you Peter.
Our next question comes from the line of Jon Andersen with William Blair. Please proceed with your question.
Hey, good morning, everybody. Thanks for the question.
Want to ask first about the <unk>.
Rollout Foodservice you mentioned that 2000 Jersey Mikes, and then I think you've mentioned authorizations and over 3000, Dunkin' Donuts nationwide, what's the timing of that with Dunkin' Donuts and what are your expectations for further rollout in eateries.
As you move forward this year and next.
Yes, John Great question I think.
We do see a huge opportunity in foodservice I think when you look at and we've been we've talked about this with Celsius, which is unique is that consumers really.
You know are enjoying Celsius, and consuming celsius outside of that traditional energy drink.
Consumption occasion, which I think is a huge unlock for the brand in the portfolio. When you look at Jersey, Mike's, we're really using that and really focused on that as a proof of concept.
This is really our first nationwide.
S casual chain, so and initial feedback has been positive, but we're really really early I mean, you look at it probably only afford it about four weeks in but initially has been a fairly fairly excited on the partnership.
And we're going to continue to see how that goes I think that's it.
If that's successful we'll be able to roll that out to other.
Other fast casual restaurants, and eateries that Pepsi has access to and perhaps he has vast access to a large portion of foodservice. So.
Dunkin' Donuts was a great addition, unfortunately, we only have one SKU.
Currently that is authorized and that's our orange flavor, which tastes great and refreshing.
Have had heard feedback from a variety of new customers to their portfolio that they've actually found Celsius.
And learned about Celsius, because of the distribution gains in Dunkin Donuts, which was a great. So I think the foodservice can be a great.
Wade also bring new consumers into the franchise in our portfolio.
We are in about 3000 to 4000 Dunkin' Donuts currently.
There's a lot more dunkin' donuts to further leverage and grow upon so it's really that proof of concept and also getting more flavors and Jersey Mike's we have about three flavors right now and Dunkin Donuts is one so still in the early phase, but I think when you see the success of our revenue our Pepsico revenue of approximately 10% is foodservice, which is universities and hospitals.
I think we're all really excited about the opportunity that lies ahead.
Yes, absolutely.
You've mentioned essentials is a key innovation for 2024, how is that product line differentiated within your portfolio and that really are.
A key element of achieving the the greater shelf space and facings that you've talked about.
Thank you expect in 'twenty four is that going to be more limited to.
Select retailers such as 711 initially.
Yeah.
Central Southeast Central line.
Is it going to be limited to just particular retailers initially.
Really focused on further building out our core.
Portfolio.
So that's a that's a par.
When you look at prioritization of prioritization is number one our core buy offerings flavor profiles, and then secondary will be our Celsius essentials, that's going after that performance energy segment.
Initial feedback has been extremely positive and it is designed to be incremental on top of the games that were already anticipating we're getting in 'twenty four so and we've aligned with.
Our partners on this as well so and feedback has been initially are well received.
And last one for me as you think about.
You mentioned kind of the secondary placements and I think part of that is.
Leveraging.
The relationship with Pepsico in terms of coolers and part of it is your own.
Effort to establish a branded cooler location.
Or are you with respect to Celsius coolers. This year I know you had set a target earlier in the year are you on track to deliver that and how much more opportunity is there on that front as you as you look ahead. Thanks.
Yeah, No John that's a great great Great question, it's something the teams are extremely focused on.
Not only within our core team members, but also within the Pepsico sales organization. So a cooler initiative and program is part of our perfect stores our strategy, So and that's a way we kpis the team as well so youre going to get a warm placement you called placement secondary placement at could include an end cap and then most important and then also.
Hold placement upfront as well as the perfect store has the Celsius brand and coolers. So.
You know our goal was approximately around 15000 to be placed this year, we're working towards that.
We'll see if we're going to be able to achieve it we only have a few months left a.
The coolers.
Our biggest win we're working on now is gaining a chain wide.
National authorization in front checkout coolers at major retailers, where we can really close 1000 2003 thousand store locations. As an example, we just entered public stores with expanded distribution in the front end cap or a front checkout coolers. So that was a big win although not a celsius branded cooler we do have great play.
Men in those checkouts, and that's going to allow us to continue to increase our availability increased trial.
And take advantage of those impulse purchases that we know Celsius can capitalize on.
Thanks, so much.
Thank you.
Our next question comes from the line of Eric <unk> with Morgan Stanley. Please proceed with your question.
Good morning, guys.
First a quick housekeeping question I know you talked about selling and marketing expense as a percentage of sales being up in the fourth quarter.
What about promotional allowances and you guys in the short term looking for any material changes in promo allowances versus where you were in the third quarter.
Adjustment that you made and then I'll have a bigger picture question.
Yes, the promos I'd look more to the year to date.
Percentage.
As we look to Q4.
But John you want to jump on the sales and marketing let me jump on that one.
Go ahead, yeah, so sales and marketing you know obviously, it's a little trickier in October November December you've got Halloween Thanksgiving Christmas. The you have to come up with a little bit different incentives and different programs.
So we're working those through the system.
And then obviously were looking to hit the ground running with a number of the sponsorship that we picked up that.
Yes release over the last six months so.
So we are looking to continue to spend into the holiday season, we found it to be very successful last year when.
When we spent into the holiday season part of that was also because our ACB.
Went from 65 to a 90 pretty quickly.
We've been sitting at that 90, all year. So the goal is to really help build those velocities as we work our way into 2024 from a sales and marketing perspective, and especially also leaning into by a reset window. So.
Great and that sort of leads into my next question, which was on velocities I think one of the positive surprises over the past year or certainly the past.
<unk> has been the acceleration and velocities as we use.
Rapidly expanded distribution how are you thinking about the scope for velocity growth over the next call. It 12 to 24 months.
On the one hand, some new distribution, you're adding maybe a little bit less productive, but you are seem to be getting some some billboard effect.
Some broader awareness so yeah big picture, how are you thinking about potential for velocity OPEC cut.
The coming year or two.
Yeah, I think Eric when you look at it that's something that we're really focused on and it's going to come from a variety of different areas in order to continue to drive toward we are entering uncharted territories at north of a 10 share which hasn't been achieved in the energy category in over a decade, but when you look at some of the great.
What has taken place over the last nine months.
This year, it's just a really a great achievement for the team and our partners I think one exciting news piece, we just got recently from numerator and the way we're tracking household penetration.
In our household penetration.
More than doubled so we were brought around a 25%.
Household penetration versus an 11 one.
1% in the year ago period, when we tracked it last time per numerator and we Werent Celsius was the number one growth brand in all of sports and energy. So we're getting some really good traction there. The teams have been doing a really great on leveraging our marketing strategies I think theres a lot of opportunity to further drive ROI out of our.
Marketing programs within our sales programs as well so where.
Velocities go from here.
That's really a somewhat of an unknown, but we're working to continue to drive that forward I think on the resets coming in when you look at the expansion that we anticipate gaining additional.
Shelf space, that's going to allow us to have better.
That's going to further build out that Billboard effect.
To be able to engage.
Engage with the shopper at the point of purchase which is supercritical. So.
Time will tell I guess, we'll find out as we continue to evolve quarter over quarter on future calls.
Great. Thanks, I'll pass along.
Thank you.
Our next question comes from the line of Jim <unk> with Stephens. Please proceed with your question.
Hi, everyone. Congrats on a good quarter and thanks for taking our question.
I wanted to follow up on the foodservice piece, because it seems like that would be.
On an end market that would traditionally be for kind of carbonated soft drinks or Ts do you have a sense for are those consumers into foodservice.
<unk> from drinking.
Pepsi to dragging us lcs or drinking tea to Celsius, and if that's the case do you are you able to track that.
Into switches from soft drinks.
At retail as well.
Jim that's the that's the great question, that's a huge unlock that we're working on and I think we need a little bit more data coming in as we expand into foodservice, what we're seeing with the Celsius consumer, but I think it's fascinating we saw this inconvenience and.
And we see this where our consumer is number one were incremental to the category and also our consumer.
We've seen them.
Have a bigger basket ring I E purchasing Celsius, with a water or food snack, which I think is another competitive advantage when looking at the Celsius consumer within foodservice, we have a hypothesis that our consumer is actually getting water are not getting a beverage because they're ordering on potentially delivery dudes are another plat.
For them, where they're not getting the fountain drink. So we're not competing with the fountain, but we need more data on that but we do see is within some of the apps that initial.
Initial feedback has been on there on our set is that we are being incremental to these eateries and fast casual restaurants on the within the beverage purchase.
Yeah.
Great that's helpful color.
You might have already kind of addressed this just saying it's still early days, but just thinking about the implications that that as moving forward do you think there's a possibility that if you do see those.
T or carbonated soft drink consumers buying Celsius, but not participating in other energy buys that you could find yourself outside of the energy category in retail and really be place kind of throughout the store. Unlike some of the other traditional energy drinks.
We're seeing that now in certain locations within a given stores like ralphs, they're placing us.
You know, where where you have grabbing go I know in several public says and kroger's replaced and we have a secondary placements in the grabbing go section so where people are getting food and grabbing food items. So I think that's a huge opportunity for us I know you.
You know what I see tons of people, we have a cafeteria or a small eatery right next to our office in.
You see people, having sandwiches and bowls and they sell a lot of Celsius. There. So I think there's a huge opportunity and unlock as we grow forward just to that Celsius plays outside of traditional energy and that opens up a bigger Tam opportunity.
Also when you look at the.
Some of the latest data points coming out and you look at.
Total beverage brands Celsius, just made it into the top 10 within total beverages within the L. R. B, which is liquid refreshing beverages and the overall category, which is another great achievement that the that the portfolio has been able to achieve in the.
Third quarter.
That's great. Thanks, guys I'll pass along.
Our next question comes from the line of Jeff Van Citizen with B. Riley. Please proceed with your question.
Hi, good morning, everyone.
Just wanted to touch on.
The fact that you've got ongoing distribution and elevation and SKU expansion and I guess, how are you thinking about seasonality for Q4. This year keeping in mind that comparison to the <unk> launched last year.
Thanks, Jeff.
Look at seasonality or there's something in the category.
It's happened we start we saw that last year, there is going to be some seasonality, we should anticipate some seasonality within the quarter and what that looks like as we go into to.
Finalize the quarter, we need to evaluate that but also you have another we've talked about it earlier potential inventory.
A reduction of inventory at within our Pepsi partner, which is their.
Main supplier at this point so in addition to that and the seasonality.
We anticipate some type of pullback in the first quarter it just traditional.
Traditional seasonality levels.
Okay. That's helpful. And then aside from the Essentials line is there other substantial innovation plans for 2024 or is the main innovation engine essentials for 24, maybe if you could just touch on further innovation plans.
Sure.
Yeah, absolutely innovation for 24, we have been working really hard the team has been working really hard we're going to continue to build out our portfolios.
Each one of our core fruit for flavor offerings, we have some new great flavors coming in we'll announce those shortly we have new vibe flavors coming out where we're going due to the successes cosmic the eye, but we're going to continue with that theme through a trilogy will have some great flavors on that day.
Talk about on the call our Celsius Essentials line or 16 ounce line.
Really going after that performance energy category, and then a great opportunity we have and it's something we don't really talk about too much is our powders and on the go in really going beyond the bottle or bought beyond the can we.
We think that's a great opportunity we have been getting a lot of interest further interest from retailers on that portfolio.
And we will be bringing out our vibe flavors into our powder product offerings into 24, so what see further expansion with all of our portfolios and it teams really excited we got some great flavors I know you'll enjoy them Jeff.
As you are you're always been a big fan so.
But we're excited where we stand.
Can't wait to try and thanks for taking my questions.
Thanks, Jeff.
That is all the time, we have for today I'd like to hand, the call back to John Haley for closing remarks.
Thank you Doug on behalf of the company I'd like to thank everyone for their continued support and interest our results demonstrates our products are gaining considerable momentum in capitalizing on today's global health and wellness trends expanding the energy category and driving growth in both dollars and units I'd like to take this time to thank our investors for their continued support.
Short and confidence in our team the company will be attending several upcoming investor conferences throughout the month of November and December, including Stevens Jefferies Morgan Stanley Roth capital Investor conferences, we look forward to seeing many of you. There. Thank you for your interest in Celsius stay healthy and lift fit.
Ladies and gentlemen, it does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.